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Shares in chip firm Imagination plunge 60% after 'worst nightmare' Apple blow

Shares in British chip designer and Apple supplier Imagination Technologies have plummeted more than 60% after it revealed that the US tech giant will no longer use its products.

Imagination said on Monday that Apple, its largest customer, will cease using the group's intellectual property in its new products within two years, and it will therefore not be eligible for royalty payments.

Investors reacted badly to the news, with shares in the Hertfordshire-based group dropping 63% to 99p in afternoon trading.

Imagination said in a statement: "Imagination Technologies ... has been notified by Apple, its largest customer, that Apple is of a view that it will no longer use the group's intellectual property in its new products in 15 months' to two years' time, and as such will not be eligible for royalty payments under the current licence and royalty agreement."

The firm added that Apple claimed it is working on its own graphics platform to support its products, meaning it will rely less on Imagination's technology.

But it said the US firm has "not presented any evidence to substantiate its assertion that it will no longer require Imagination's technology, without violating Imagination's patents".

The statement continued: "This evidence has been requested by Imagination but Apple has declined to provide it.

"Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights; accordingly Imagination does not accept Apple's assertions.

"Apple's notification has led Imagination to discuss with Apple potential alternative commercial arrangements for the current licence and royalty agreement."

Imagination's graphics technology has been used in an array of Apple products including the iPhone, iPad and iPod for several years.

The loss of its biggest customer will come as a bitter blow and follows on from a tumultuous 2016.

Last year Imagination posted a £61.5 million loss, the biggest in its history, and also embarked on a cost-cutting drive which saw 200 jobs axed.

Neil Wilson, senior market analyst at ETX Capital, said the situation represented Imagination's "worst nightmare", adding that the firm appears to be hinting at legal action against Apple.

He said: "It's the worst nightmare for Imagination. Apple accounts for about half its revenues - you simply cannot easily replace a customer of that scale in a hurry, hence the gigantic sell-off in the stock. But the sell-off might be a bit stretched and we have seen a bit of easing from the worst of it this morning.

"Imagination seems to be hinting at legal action, saying Apple would likely be in breach of its intellectual property rights if it walks away. But there could be a compromise, with Imagination stressing 'potential alternative commercial arrangements'. Either way this is about as bad as it can get for Imagination."

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